Bloomberg News

German Stocks Fall After S&P Ratings Review; RWE, Metro Slump

December 06, 2011

Dec. 6 (Bloomberg) -- German stocks dropped, snapping a two-day advance for the DAX Index, after Standard & Poor’s put Germany and 14 other euro-area nations on watch for potential credit-rating downgrades.

RWE AG slumped 7.2 percent after Germany’s second-largest utility raised 2.1 billion euros ($2.8 billion) in a share sale to reduce debt. Metro AG sank the most on record as the retailer cut its profit forecast. Commerzbank AG and Deutsche Bank AG, the nation’s biggest lenders, lost more than 1.5 percent.

The benchmark DAX slipped 77.27, or 1.3 percent, to 6,028.82 at the close of trading in Frankfurt. The gauge has retreated 13 percent this year as the sovereign-debt crisis spread through Europe and investors speculated economic growth will stall in the region next year.

“This raises the political pressure in Germany on Angela Merkel with respect to the costs of closer integration with economically weaker European countries as their borrowing costs rise,” said Michael Hewson, a markets analyst at CMC Markets in London. “This, it would seem, is the price of admission towards closer integration.”

Germany, France and four other euro-area nations may lose their AAA credit ratings, depending on the result of the summit of European Union leaders on Dec. 9, S&P said late yesterday. The ratings company put a total of 15 euro nations on review for possible downgrade.

‘Systemic Stress’

“Systemic stress in the euro zone has risen in recent weeks and reached such a level that a review of all euro-zone sovereign ratings is warranted,” S&P said in a statement.

Downgrades of Germany and France would affect the rating of the European Financial Stability Facility, the bailout fund for struggling euro-member countries that has funded rescue packages for Greece, Ireland and Portugal partially through bond sales. If the EFSF has to pay higher interest on its bonds, it may not be able to provide as much funding for the most indebted nations.

German Chancellor Angela Merkel and French President Nicolas Sarkozy responded in a joint statement late yesterday that they “took note” of the move by S&P, while both countries “affirm their conviction” that proposals for fiscal union will “strengthen coordination of budget and economic policy and promote stability, competitiveness and growth.”

RWE slid 7.2 percent to 28.15 euros, the largest decline in a month, after the Essen, Germany-based company said it sold 80.4 million shares at 26 euros apiece.

Metro plunged 14 percent to 31.86 euros, the biggest drop since the shares started trading in 1996, as Germany’s largest retailer forecast that sales and earnings will fall this year following a weak start to the Christmas season.

Commerzbank lost 2.9 percent to 1.40 euros and Deutsche Bank retreated 1.9 percent to 29.66 euros.

--Editor: Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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